Market value is likely to be the most widely adopted tax base for property taxation. According to the International Association of Assessing Officers, assessment uniformity is related to the fair and equitable treatment of individual properties. Each property has to be appraised at the same level, or ratio, of market value.
Assessment bias occurs when some classes of properties have a ratio of assessment to market value significantly different from the ratio of others in the same taxing jurisdiction (IAAO 1990a). These assessment inequities can be divided into horizontal and vertical components. Horizontal inequities are systematic differences in assessment level among groups of property.
According to Cannaday et al. (1987), they are present when persons having similar properties with the same value pay different amount of tax due to assessment bias. Vertical inequities are systematic differences in assessment level for groups of properties defined by value. They can be either regressive when high-value properties are under appraised relative to low-value properties, or progressive, when the opposite occurs.
There are many reasons for the occurrence of assessment bias. Poor performance in valuation may be related to unsophisticated valuation techniques, limited access to market information, and omission of important attributes in estimating the tax base.
Indeed, the approaches commonly adopted for real estate valuation (cost analysis - sales comparison) do not incorporate attributes that can not be easily quantified and qualified (Dwyer 1996). Other possible causes of assessment bias are basing estimates on non-representative samples, inaccuracies in the real estate cadastre, and infrequent revaluation. In most countries the law requires a reappraisal at specific intervals, which usually vary from 3 to 5 years (IAAO 1990a).
However, lack of frequent revaluation is common. For example, Metropolitan Toronto has not had a full-scale reassessment since 1954, and the last valuation was based on 1940 values (Youngman 1998). The usual time lags between assessments in a dynamic housing market accentuate the initial price-related assessment bias, because low priced and deteriorating structures tend to decline quicker in value than the better ones (Paglin and Fogarty 1973).
The present paper is concerned with the analysis of equity in property taxes. The study aims to devise and explore empirically a method for examining assessment uniformity. The analysis is limited to the segment of the residential market represented by individual apartment units and covers a three-year period of taxation, from 1993 to 1995.
